A new approach to an age-old problem: solving externalities by incenting workers directly - Grantham Research Institute on climate change and the environment Printed 24 May 2018 http://www.lse.ac.uk/GranthamInstitute

A new approach to an age-old problem: solving externalities by incenting workers directly

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Understanding motivations in the workplace remains of utmost import as economies around the world rely on increases in labor productivity to foster sustainable economic growth.

The authors of this paper created a unique opportunity in partnering with Virgin Atlantic Airways to test a role for the monitoring, performance information, personal targets and prosocial incentives on fuel efficiency of their captains.

Monitoring and targets were found to induce captains to improve efficiency in all three key flight areas: pre-flight, in-flight and post-flight. The study provided the lowest calculated marginal abatement cost per ton of CO2, at negative $250 (i.e. $250 savings per ton abated).

Methodologically, the authors’ approach has implications for climate policy and suggests a new way to combat firm-level externalities: by targeting workers rather than the firm as a whole.